Water District Buy In Legal Swamp

A Yavapai County Superior Court judge will soon be charged with deciding whether the Pine Strawberry Water Improvement District violated a court order to allow it to take over the two communities’ water companies and if sanctions should be placed against the district’s governing board.

The order PSWID is being accused of violating was issued May 3 in Gila County Court and required the board to post a $3.2 million bond by May 22 to take over the two water systems owned by Brooke Utilities, the parent company of Pine and Strawberry water.

The PSWID board had earlier asked for the order of immediate takeover saying it had the money for the purchase and was ready to assume the daily operation of the utilities.

However, at a May 21 PSWID board meeting, president Bill Haney told the audience the bond would not be posted by the court-ordered date because Compass Bank balked despite its earlier agreement to fund the purchase.

Board members also said they did not want to assume control of the Pine and Strawberry water companies on a busy holiday weekend and Brooke Utilities president, Bob Hardcastle, had not cooperated with the takeover.

On May 28, PSWID attorney John Gliege filed a motion with the court to vacate the order for immediate possession, citing seven reasons the district did not want immediate control of the two small-town water companies.

That apparently prompted a June 1 response from Brooke Utilities’ attorney Jay Shapiro of the firm of Fennemore Craig.

In a civil action, he asked the court to place sanctions against PSWID for “its bad faith and failure to comply with the court’s order of immediate possession.”

Hardcastle said that in addition to the sanctions, “we’re asking for the court’s protection against future litigation costs and other remedies in the event the same problem exists at the conclusion of the condemnation litigation.”

In Brooke’s legal action, lawyers ask the court to award Brooke Utilities all fees tied to the district’s application for immediate possession, require PSWID to post a bond in the amount of Brooke’s attorney fees and force PSWID to disclose all information they have regarding their purported financing.

PSWID General Manager Harry Jones argues there is no grounds for the court to saddle the board with sanctions and there are good reasons why the district did not post the bond.

“(The reasons) are all contained in the motion (PSWID) filed in (Yavapai County) court,” he said.

They include allegations that Brooke Utilities was preparing to give up possession of the two water companies and leaving several unresolved ADEQ and ACC violations, which the district would have to correct at its own cost, Jones said.

The suit argues the information provided by Hardcastle was insufficient to meet Brooke’s requirements in the stipulated agreement signed April 16.

Also, the board’s legal action alleges a dispute over ownership of a well Brooke Utilities has been using must be solved before the takeover can be completed.

The district is apparently referring to a claim filed in early May by Gary Rogers in which Rogers argued that he is the owner of property included in PSWID’s condemnation lawsuit and he had not agreed to the sale stipulation between Brooke and the district. Rogers also claims he has not been involved in any of the discussions between the two parties.

Rogers asked the court to schedule a hearing before PSWID takes over the two water companies.

“Those major changes in circumstances from the time the stipulated agreement was signed until May 22 were the reasons the bond wasn’t posted,” Jones said.

In Brooke Utilities’ motion for sanctions, lawyers wrote, “PSWID was forced to admit that it did not have and indeed never did have the financing or funds available to post the bond.”

Money or not?

In November 2008, the PSWID board filed its original condemnation suit to take over Pine and Strawberry water companies.

The civil action for immediate possession was filed March 25 and the stipulated agreement between PSWID and BU was signed April 16. It was in that stipulated agreement that the board agreed to post the bond and assume control of the water companies.

Hardcastle has contended since the condemnation suit was filed that the district never did have the funding in place to purchase the two water companies.

But Jones counters by saying the agreement the board had with Compass Bank is still good and once some hurdles are cleared, including the ownership of the Rogers well, the purchase can be completed.

That’s nonsense, Brooke’s lawyers claim.

BU also claims PSWID knowingly orchestrated the fiasco knowing it did not have the financing which misled the court and Hardcastle to believe the financing was in place.

In a letter from Compass Bank Payson President Michael Whalen to Jones, Whalen wrote that Haney had given the bank a check for the loan origination fee but, “is unwilling to amend its commitment to cover the stipulations regarding immediate possession in view of a number of risks attendant to that process as well as other matters and developments relating to the district.”

Whalen was not available to comment further.

Gliege wrote in an e-mail to Bart Wilhoit, one of BU’s attorneys, “We have the money to close the whole transaction, but the bank, in light of what has occurred and in light of its concerns about the immediate possession concept, is not willing to fund the immediate possession at this point in time.”

The condemnation lawsuit, PSWID’s motion to vacate the order for immediate possession and Brooke’s motion for sanctions were changed to Yavapai County Court in Prescott from Gila County two weeks ago after BU’s attorneys filed a change of venue motion.

Brooke spokesperson Myndi Brogdon said she could not comment on the reason for the change. “They wanted it in Maricopa County Court, but we wanted it in a rural area and asked for Yavapai,” Jones said.

With the immediate possession order now dead in the water, Jones says PSWID will continue with its condemnation lawsuit, but it could take more than a year before the matter is settled.